Tools › Finance and Business › Pricing › Wrap Rate and Indirect Rates › Example

Twelve-person engineering services firm: fringe, overhead and G&A rates, wrap rate 2.4151, a task priced as cost-plus-fixed-fee, firm-fixed-price and time-and-materials

ToolWrap Rate and Indirect Rates
SourceDefense Contract Audit Agency (2012). Information for Contractors. DCAA Manual No. 7641.90, June 26, 2012, Figure 4 (model proposal, pp. 27-33) and Figure 12 (model incurred cost proposal, Schedules A to H, pp. 77-85); Federal Acquisition Regulation, 48 CFR 31.203, 31.205-18, 15.404-4, 16.601 and 52.237-10; Cost Accounting Standards, 48 CFR 9904.410 and 9904.414.
LevelProfessional

Problem

A government contractor of twelve people budgets its year: six labour categories with raw rates of 30 to 82 per hour and utilisations of 0 to 90 %, 2,080 paid hours less 248 hours of leave, payroll taxes of 8.5 % and retirement of 4 % of payroll, health insurance of 9,600 per person, overhead expenses of 185,000 (4,000 more unallowable), G&A expenses of 120,000 (9,000 more unallowable), 30,000 of IR&D / B&P labour with 5,000 of other costs, 60,000 of materials, 150,000 of subcontracts, 45,000 of travel and other direct costs, a 6,300 material-handling pool, facilities of 90,000 and 20,000 net book value at a 4.75 % cost-of-money rate, and an 8 % fee. Fringe is allocated on total labour, overhead on direct labour plus fringe, material handling on materials and subcontracts, G&A on total cost input. Find the indirect rates, the wrap rate, the billing rate of each category, the price of a 1,660-hour task with 45,000 of other direct costs under three contract types, the utilisation and the overhead budget that give a wrap rate of 2.30, and the year-end true-up for entered actual pools.

Inputs to Enter

  • Staff (headcount, raw rate, utilisation, pool of non-billable time): Principal Engineer 1, 82.00, 55 %, GA; Senior Engineer 3, 62.00, 80 %, OH; Engineer 4, 46.00, 88 %, OH; Designer 2, 34.00, 90 %, OH; Program Manager 1, 55.00, 30 %, GA; Office Administrator 1, 30.00, 0 %, GA
  • Hours 2,080 paid, 120 paid time off, 88 holidays, 40 sick; payroll taxes 8.5 %, health 9,600 per person, retirement 4 %, other fringe 6,000
  • Overhead expenses 185,000, unallowable 4,000, IR&D / B&P labour 30,000 and other 5,000; materials 60,000, subcontracts 150,000, travel and ODC 45,000, handling pool 6,300; G&A expenses 120,000, unallowable 9,000; Treasury rate 4.75 %, facilities 90,000 (overhead) and 20,000 (G&A); fee 8 %
  • Task: 60 / 400 / 900 / 300 hours of Principal Engineer / Senior Engineer / Engineer / Designer, materials 12,000, subcontracts 25,000, travel and ODC 8,000, on-site, 45 hours per week proposed; target wrap rate 2.30
  • Actuals: fringe 441,400 on 1,086,200; overhead 329,900 on 1,108,600; G&A 423,400 on 1,699,700; cost-type labour 476,500, materials 36,000, subcontracts 90,000, ODC 27,000
Open the Wrap Rate and Indirect Rates tool (loaded with this example)

Answers

  • Productive hours 2,080 - 248 = 1,832; direct hours 15,700 of 21,984 (utilisation 71.42 %); direct labour 794,208.64, payroll 1,258,400.00, leave pay 150,040.00
  • Fringe pool 428,540.00 / 1,108,360.00 = 38.66 %; overhead pool 311,265.74 / 1,142,883.41 = 27.24 % (27.59 % with the unallowable); material handling 6,300 / 210,000 = 3.00 %; G&A pool 445,679.76 / total cost input 1,666,374.64 = 26.75 %; G&A not recovered on the unallowable overhead 1,030.88
  • Cost-of-money factors 4,275.00 / 1,142,883.41 = 0.003741 (overhead) and 1,105.60 / 1,666,374.64 = 0.0006635 (G&A)
  • Wrap rate (1 + 0.3866)(1 + 0.2724)(1 + 0.2675)(1 + 0.08) = 2.4151, 2.4214 with the cost of money; billing rates 198.56 / 150.13 / 111.39 / 82.33 per hour for the four task categories
  • Task: labour 81,320.00, fringe 31,441.84, overhead 30,710.83, handling 1,110.00, cost input 189,582.66, G&A 50,704.78, estimated cost 240,287.44, fee 19,223.00, cost of money 547.57, price 260,058.01 (cost-plus-fixed-fee and firm-fixed-price); time-and-materials 196,915.60 of labour + 58,472.93 = 255,388.53
  • Target wrap 2.30: break-even utilisation 75.08 % (804 more direct hours a year), or an overhead expense budget of 103,402.94 in place of 185,000
  • True-up: actual rates 40.64 % / 29.76 % / 24.91 % against 38.66 % / 27.24 % / 26.75 %; effects +15,159.14, +21,430.60 and -18,835.26; 17,754.48 under-billed on the cost-type contracts; uncompensated overtime at 45 hours: rates x 40/45 = 0.8889, task price 238,179.16

Notes

The tool's default inputs are this firm; press Submit. The firm is illustrative (stated on the page). The method is checked by test_wrap_rate_indirect_rates.php (2,187 checks) against the two models printed in DCAAM 7641.90 (overhead 77.74 %, G&A 8.60 % on a total cost input of 3,151,320, cost-of-money factors 0.01558 and 0.00067, Schedule H contract by contract; the model proposal's 56.7 % / 5.0 % / 8.0 % and its price of 1,032,065), the FAR 52.237-10 example (17.78) and an independent numpy / scipy script (References/Wrap-Rate/checks/).